Investing.com – The Bank of England (BoE) is not expected to make changes to interest rates or its asset purchase program in its policy decision on Thursday, but market players will pay close attention to the bank’s tone for indications of a more hawkish stance, while some analysts forecast that another member of the Monetary Policy Committee (MPC) could call for a rate hike.
The BoE will announce its decision at 11:00GMT (7:00AM ET) on Thursday and is widely expected to leave rates untouched at 0.25% and its asset purchases unchanged at £435 billion ($536 billion).
The central bank will also publish its Quarterly Inflation Report with projections for inflation and growth at the same time on Thursday.
Market players expect BoE policymakers to remain cautious for at least the next few months as they assess the extent of any consumer slowdown while waiting to see how the snap elections in June pan out and maintaining an eye on developments surrounding the European Union (EU) divorce negotiations.
However, the BoE will need to update its outlook given the recent flow of data, while hawks could argue that a rate hike is warranted give to the fact that inflation has increased a bit faster than expected, clocking in at 2.3% in March, along with strong business surveys suggesting that the economy has weathered the initial shock from the vote to leave the EU, known as Brexit, and does not require stimulus.
To the contrary, doves will cite the tepid 0.3% growth in the first quarter that was only half what members had forecast at the meeting last March and add that wage increases remain weak, giving little reason to fear upward pressure on inflation.
A recent Reuters poll suggested that MPC member Kristin Forbes will remain in her hawkish minority. Forbes was the only one out of nine members that voted in March to raise rates on inflation concerns and the fact that the economy had remained robust post-Brexit.
With the resignation of deputy governor Charlotte Hogg for breach of the BoE’s code of conduct, the MPC will be left with just eight members and the Reuters poll showed that experts unanimously believed the vote would stick at 7 to 1.
Saunders could join hawkish camp in calling for hike
However, the minutes for the March meeting showed that some members felt that that “little further upside news” would be sufficient to persuade them of the case for tighter policy.
Along those lines, some analysts took MPC member Michael Saunders’ April speech to be a hint at a change in his stance as he said that felt that economic growth would come reasonably quickly and it would be “natural” for policy to react accordingly.
Such is the case of Morgan Stanley whose economists expect the vote to shift to 6 for no change and 2 for a hike.
“We think that the MPC stays on hold, but the shift to the hawks opens up the possibility of an opportunistic hike in the second half of 2017,” these experts said in a note to clients.
Economists at ING revealed themselves to be much more skeptical about the BoE embarking on policy tightening.
“No U.K. rate hike until Brexit talks end in 2019 – that’s what we reckon,” they said.
“We’ll find out what the Bank of England thinks on Thursday,” these experts concluded.
As markets waited for the announcement, GBP/USD slipped 0.02% 1.2938, EUR/GBP rose 0.18% to 0.8412, while GBP/JPY dropped 0.07% to 147.75.
Meanwhile, European stock markets traded flat. London’s FTSE 100 inched down 0.06%, the benchmark Euro Stoxx 50 lost 0.14%, France's CAC 40 fell 0.15%, while Germany's DAX traded down 0.13%.